SCOR

Business Context and Reporting Period

Company: comScore, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2007
Business Overview: comScore provides a digital marketing intelligence platform, utilizing a panel of over two million Internet users to measure online behavior, demographics, and advertising effectiveness. The company operates primarily through its Media Metrix product family and Marketing Solutions.

Key Financial Metrics

All figures in thousands, except per share data.

Debt and Liquidity: The company had no long-term debt other than capital lease obligations ($1,530 long-term; $1,448 current). Total liquidity (cash, cash equivalents, and short-term investments) stood at $21.7 million as of June 30, 2007.

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 23.1% year-over-year for the three months ended June 30, 2007, and 23.8% for the six-month period. Growth was driven by increased sales to existing U.S. customers and expansion in international markets (Europe and Canada).
• Profitability: Operating income increased from $1.6 million to $2.6 million (Q2) and from $1.7 million to $4.1 million (YTD). Net income attributable to common stockholders turned positive ($317k for Q2, $972k YTD) compared to a loss of $44k YTD in 2006, largely due to improved operating leverage.
• Expense Trends: Selling and marketing expenses rose 25.5% (Q2) due to headcount increases and commissions. Research and development expenses increased 24.6% (Q2) to support new product launches (World Metrix, Video Metrix, Campaign Metrix).
• Non-Operating Items: A significant non-cash charge of $1.3 million (Q2) and $1.3 million (YTD) was recorded for the revaluation of preferred stock warrant liabilities. Foreign currency losses increased to $202k (Q2) due to the strength of the Canadian dollar.

Guidance, Outlook, and Risks

• Initial Public Offering (IPO): The filing notes a subsequent event: the company completed its IPO on July 2, 2007, issuing 5 million shares at $16.50 per share. Net proceeds were approximately $76.7 million. All convertible preferred stock converted to common stock upon closing.
• Outlook: Management anticipates continued revenue growth from U.S. and international expansion. They expect operating expenses to increase in absolute dollars due to growth initiatives and the costs of being a public company (e.g., legal, audit, insurance).
• Key Risks:
  • Panel Maintenance: Reliance on a panel of sufficient size and scope; costs may increase if turnover rises or if software is classified as "spyware."
  • Competition: Highly competitive market with established players (Nielsen, Arbitron) and new entrants.
  • Customer Concentration: Top 10 customers accounted for 40% of revenue in the first half of 2007; Microsoft alone accounted for 15%.
  • Regulatory/Privacy: Potential impact of privacy laws and regulations on data collection methods.
  • Technology: Risks related to system failures, data accuracy, and the need to adapt to new technologies (e.g., AJAX, mobile devices).

Investor Verification Checklist

• IPO Proceeds Utilization: Verify how the $76.7 million in net IPO proceeds (received post-period) is being deployed against the stated plan for capital expenditures and acquisitions.
• Customer Concentration: Monitor the renewal rates and spending levels of the top 10 customers, particularly Microsoft, which represents a significant revenue portion.
• Panel Churn and Costs: Track the cost of maintaining the consumer panel and any changes in panel size or quality, as this is a primary driver of Cost of Revenues.
• Stock-Based Compensation: Review future stock-based compensation expenses, as the company has $6.7 million in unrecognized expense to be recognized over the next 2.24 years.
• Valuation Allowance: Monitor the $32.2 million valuation allowance against deferred tax assets; a reversal could materially impact future earnings.